You will keep on hearing this sentence, "Trend is your friend, never trade against the trend." True, only if you know how to do it right. Do it wrong and the trend can be your enemy. Believe me, it is just like that. So, you don't need to make the trend you enemy by making a late entry at a time when most of the other traders are already jumping off the trend. If done correctly, trend trading can be far more profitable as compared to range trading. Once you have entered the trend, you don't need to manage your trade a lot if you placed a trailing stop correctly.
Entering a trend early in the first few days allows you to enter when the risk is lowest. Entering a trend when it is already weeks or months old raises the chance of your getting on when you should have been getting off. The difficulty in trend trading lies in identifying when a trend has started and knowing when to get off quickly when the trend is over.
So the biggest risk for a trader engaged in swing trading trend lies in the possibility of entering a trend when it is just about to end. Someone has described this phenomenon of entering late in the trend as like a dog chasing speeding cars. It may be fun for sometimes but eventually the dog will get run over by a speeding car.
So, minimize your chance of riding a trend that is about to crash. What you need is a trading system that can identify when a trend is late and when it is right to enter the trend. So, you need a couple of indicators or perhaps a few candlestick patterns that can help you identify when the trend is about to start and when it is about to end.
ADX ( Average Directional Index) is ideal in identifying the strength of the trend. If the reading is above 20, the trend is going strong. Below 20 means there is no trend, the market is consolidating. You can use candlestick patterns like the doji, the hanging man, the hammer, the engulfing patterns and others even to spot start of a new trend or end of an existing trend. This will put the odds in your favor. Hey, trading is all about putting the odds in your favor. It is not like gambling. You do take risk in trading but the risk is calculated and measured. It is not something that can ruin you.
Moving Averages are also used extensively in trend trading along with Moving Average Convergence and Divergence. There are many method to enter and exit the trend. You have to select one that makes you comfortable. You can wait for the trend to pause a little, trying to consolidate and only enter on the day of strength or weakness. But combination of candlestick patterns with indicators is the most powerful that many traders use.
Author Resource:-
Mr. Ahmad Hassam has done Masters from Harvard. Get the Ultimate Swing Trading Software FREE. Learn Fibonacci Retracement.
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